This Week In Securities Litigation (Week of May 3, 2021)
Newly installed Enforcement Director Alex Oh resigned this week. The SEC press release stated that the resignation was prompted by personal reasons. Media reports suggest that Ms. Oh resigned in the wake of a discovery dispute in a large case she was running for her prior law firm and the entry of a court order which may end with the imposition of sanctions based on tactics employed under her authority.
Be careful, be safe this week
SEC
Resignation: Enforcement Director Alex Oh resigned on April 28, 2021 for personal reasons, according to a release issued the same date.
Whistleblowers: The Commission awarded over $3 million to two whistleblower who alerted the agency staff to violations, identified key issues and provided subject matter expertise. A second order referenced in the same April 23, 2021 release states that another whistleblower was awarded over $100,000 for specific information and assistance provided to the staff.
SEC Enforcement – Filed and Settled Actions
Last week the Commission filed 4 civil injunctive actions and 8 administrative proceedings, exclusive of tag-along and other similar proceedings.
Offering fraud: SEC v. King, Civil Action No. 1:21-cv-10714 (D. Mass. Filed April 29, 2021) is an action which names as defendants Rahsaan King and his firm, Students of Strength, Inc. Mr. King, while still a student in 2013, created the firm with the stated goal of launching an on-line tutoring firm to aid disadvantaged students. Between 2017 and 2018 he raised over $1 million from over 20 investors. In soliciting investors Mr. King misrepresented the finances and success of the firm. The complaint alleges violations of each subsection of Securities Act Section 17(a) and Exchange Act Section 10(b). Defendants resolved the matter with each consenting to the entry of permanent injunctions based on the Sections cited in the complaint. Each Defendant also consented to a conduct-based injunction prohibiting them from soliciting investors for 10 years. Mr. King will pay disgorgement of $115,067, prejudgment interest of $11,066 and a penalty of $96,384. See Lit. Rel. No. 25085 (April 29, 2021).
Insider trading: SEC v. Ahn, Civil Action No. 1:21-cv-10203 (D. Mass.) is a previously filed action centered on claims that defendant Mark Ahn engaged in insider trading in the securities of Dimension Therapeutics, Inc. In a parallel criminal action by the U.S. Attorney’s Office for the District of Massachusetts Defendant pleaded guilty. Sentencing is scheduled for June 7, 2021. In the Commission’s action Mr. Ahn consented to the entry of a permanent injunction based on Exchange Act Section 10(b). He also agreed to the entry of an order barring him from serving as an officer or director of a public company. Any financial remedies will be considered by the Court in the future. See Lit. Rel. No. 25084 ((April 28, 2021).
Disclosure/timely filing: In the Matter of Fortem Resources, Inc., Adm. Proc. File No. 3-20268 (April 29, 2021) is an action against the firm. It is also one of eight similar actions filed on the same date. The cases are based on a failure to timely file Form 12b-25, commonly known as Form NT, Notification of Late Filing. Here the firm filed Form 12b-25 in late July 2019 to disclose that its first quarter 2020 Form 10-Q would not be timely filed because in prior filings there were significant financial issues which would result in a restatement. Four days later the company filed a Form 8-K which stated that its financial statements for FY2018 and for the first three quarters of FY2019 could no longer be relied on. The Order alleges violations of Exchange Act Section 13(a) and Rule 12b-25. To resolve the matter the firm consented to the entry of a cease-and-desist order based on the Section and Rule cited. Respondent will also pay a penalty of $25,000.
Offering fraud: SEC .v Quartararo, Civil Action No. 21-cv-02305 (E.D.N.Y. Filed April 27, 2021) is an action which names as a defendant Peter Quartararo who was previously barred from associating with any broker/dealer by FINRA. Mr. Quartararo began soliciting investors in mid-2019 to purchase shares in well-known unicorns. Investors were told that they could acquire pre-IPO shares in firms such as Peloton Interactive, Inc and Airbnb, Inc. Over a period of several months at least four investors invested about $436,000 in what they believed were pre-IPO shares. Investors were told to make out their checks for the investment to Leonard Quartararo, the barred broker’s father, or Private Equity Solutions. That firm was owned by Paul Casella, who had also worked in the securities industry and been barred by FINRA. In addition, he had been convicted on federal racketeering charges for human trafficking. The pre-IPO shares never existed. Defendant made a series of payments to his girlfriend and family. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 25083 (April 27, 2021).
Offering fraud: SEC v. Franzone, Civil Action No. 1:21-cv-03619 (April 23, 2021) is an action which names as defendants Andrew T. Franzone and FF Fund Management, LLC. Mr. Franzone served as an investment adviser to FF Fund during the period here. Over a five-year period, beginning in August 20214, Defendants solicited investors with fraudulent statements while misappropriating portions of the investor capital. Potential investors were told in private placement memoranda and on the firm website that their funds would be invested in options and preferred stock. Nevertheless, Defendants put most of the investor capital into start-ups and other illiquid investments while misappropriating portions of that capital. About $38 million was raised from 90 investors. Eventually the firm tumbled into bankruptcy. The complaint alleges violations of of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1), 206(2) and 206(4). The case is pending. See Lit. Rel. No. 25081 (April 23, 2021).
Offering fraud: SEC v. Altieri, Civil Action No. 20-cv-06343 (E.D.N.Y.) is a previously filed action which named as defendant Gregory Altieri. The complaint asserted that Defendant had operated what was essentially a Ponzi scheme over a three-year period, beginning in 2017. About $69 million was raised from firefighters, police and others. Defendant resolved the matter and the Court entered a final judgment by consent enjoining him from future violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The order directs him to pay disgorgement, prejudgment interest and a penalty in an amount to be determined by the Court at a future date. See Lit. Rel. No. 25080 (April 23, 2021).
Offering fraud: SEC v. Harbor City Capital-Corp.,, Civil Action No. 6:21-cv-694 (M.D. Fla. Filed April 20, 2021) is based on a Ponzi scheme. The defendants include the firm and a series of related entities and Johnathan P. Maroney, the CEO of the firm and the related entities. In 2020 the Alabama Securities Commission issued a cease-and-desist order prohibiting Mr. Maroney from selling securities in the state. Since at least 2015 Mr. Maroney has been selling either promissory notes or bonds tied to his entities. The notes or bonds were supposed to pay 1% to 5% per month to the holders. The funds were represented to be for “lead generation.” Investors were not told of Mr. Maroney’s regulatory history. The solicitations yielded over $17.1 million. Much of the investor capital was misappropriated. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and each subsection of 17(a) and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 2502 (April 27, 2021).
Singapore
Remarks: Edward S. Robinson, Deputy Managing Director, Monetary Authority of Singapore, delivered remarks on Inflation and Cost of Living in Singapore and Asia, April 29, 2021 (here).